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What is the difference between equity securities and debt securities?

The fundamental difference is that when you purchase an equity security, you own part of the company. When you purchase a debt security, you do not have any ownership in the company. The reason someone would buy a debt security over an equity security is that if the company were to go bankrupt, debt holders would have liquidation preference over equity holders.

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  • What are examples of debt securities?

    A debt security is any security that is representing a creditor relationship with an outside entity. Examples of debt securities include corporate bonds, redeemable preferred stock, commercial paper, convertible debt, and government securities.